Until this year, the Airports Company South Africa (Acsa) has avoided the fate of many of its fellow state-owned entities (SOEs), which often turn to the government for support after years of mismanagement or revenue losses.
As the main shareholder, the government is often required to grant the SOEs funding needs in the form of guarantees or direct equity investments, putting further strain on the already constrained fiscal environment.
Covid-19 has changed Acsa’s winning streak. Now the entity has been forced to approach the government, which owns 74% of Acsa, for additional support. The pandemic, the subsequent global and domestic lockdowns, and the resulting decline in air-traffic volumes have dimmed its future financial prospects.
Acsa has approached the government for R3.5-billion in additional support over the next three years. The entity’s chief financial officer, Siphamandla Mthethwa, told the Mail & Guardian that the additional funds from the government will be used to support the company’s operational expenses and capital expenditure.
Acsa’s request for funding comes at a time when the government is seeking to reduce bailouts for its struggling SOEs amid the worsening fiscal position because of significant revenue shortfalls and higher debt-service costs. In the recent medium-term budget policy statement, the treasury identified expenditure on SOEs as one of three main risks to the short- to the medium-term fiscal outlook.
Talks on whether the funds will be granted to Acsa are ongoing, Mthethwa said. In the meantime, the entity has secured short-term bank loans, reduced operational and capital expenditure, and revised its corporate strategy.
“Pre-Covid we were an entity that would’ve never approached the government for any type of support; in fact, we were paying dividends to the government. We have run some scenarios and what we could see is that the impact [of Covid-19] on aviation as a whole is quite severe,” he said.
Acsa expects air-traffic volumes to return to pre-pandemic levels in 2024, resulting in the company having to approach not only the government but also its other shareholders, the Public Investment Corporation (which has a 20% shareholding) and minority shareholders (4%) for possible support. Mthethwa said the negotiations with Acsa shareholders are ongoing, but are more “complex” than the talks with the government because of the nature of the shareholding structure.
Before Covid-19 hit, Acsa had planned to invest massively in its infrastructure, including building new runways and terminals for its busiest domestic airports, Cape Town and OR Tambo International. These plans have now been put on the back burner because the success of the projects would be “traffic-driven, but that is highly unlikely until 2024”, Mthethwa said.
Acsa is planning to cut capital expenditure to R1-billion a year, down from the projected R17-billion.
“Assets worth R32-billion require maintenance and refurbishment … What we don’t want to see is the infrastructure deteriorate [because of less investment] … Even if we don’t increase in capacity, we have to make sure that the asset is functional,” Mthethwa said.
The entity also plans to cut its operational expenses over the next four years to offset the projected losses caused by the pandemic.
For the year ending March 2020, Acsa reported flat profits of R1.2-billion, up from R224-million in the previous financial year. The sharp rise in profits can be attributed to accounting adjustments, which resulted in the company receiving R157-million in rates refunds and fair-value adjustments to investment properties that totalled R721-million.
The pandemic led to passenger-traffic volumes declining in the first quarter of 2020 when Europe, China and the United States, which represent the bulk of international travellers to the country, went into lockdown.
At the end of the financial year, the entity was on track to record 3.3% growth in passenger traffic, but the hard lockdown led to a contraction of 0.9%% for the year.
In March, ratings agency Moody’s downgraded the Acsa rating to Ba1 and placed it on review for a further downgrade, which arrived three months later. The rating agency downgraded the company’s corporate family rating from Ba1 to Ba2, raising concerns about Acsa’s exposure to a weak carrier base and the weak economic environment in South Africa.
Although restrictions in the country have been eased to allow more international and domestic travel, the resurgence of the pandemic in Europe, where many countries have entered into another lockdown derails Acsa’s plans for increased passenger volumes, Mthethwa said.
Nonetheless, the easing of restrictions in South Africa has allowed several airlines to fly in and out of the country, which has lifted the stagnant air-traffic volumes. Mthethwa said Acsa’s rebound would also be aided by the resumption of operations of Comair and SAA, both of which are in business rescue.
Thando Maeko is an Adamela Trust business reporter at the Mail & Guardian